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Will The New Silicon Valley Transform The Economy?


Storied Silicon Valley fueled the computer and Internet booms with a potent combination of technological know-how and entrepreneurial drive. Now Northern California innovators are focusing on a new realm of opportunity—clean technology.

Venture capital firms have been pouring money into “green” technologies related to renewable energy, transportation, information technology, solar cells, biofuels, and other emerging industries. A record $8.4 billion in venture capital went to “clean tech” companies in 2008 in North America, Europe, China, and India, up 38% from $6.1 billion in 2007, according to Cleantech Group, a San Francisco-based research firm.

Solar power ventures accounted for nearly 40% of the 2008 total, followed by biofuels at 11%, Cleantech Group reports. Other industries that drew funds included transportation, smart-grid developers, small-scale wind turbines, plastics recycling, green buildings, and agriculture technologies.

While clean tech investment slid about 4% in the fourth quarter compared with the same quarter a year earlier, proponents don’t believe the current economic slowdown will halt the field’s growth over the long term. “We’re in the first chapter of a century of opportunity for clean tech,” says Ira Ehrenpreis, a general partner in Palo Alto-based Technology Partners and chairman of the 2009 Clean Tech Investor Summit held in January. “The problems addressed by clean tech are the most fundamental problems we face in the 21st century, and we are just beginning to see the first wave of innovation and capital dedicated to these problems.”

Stanford University, in the heart of Silicon Valley, is the latest institution to place a big bet on clean tech. The Palo Alto school, known for its entrepreneurial focus, is investing $100 million to create a new institute for renewable energy research. The institute will provide seed grants for promising energy conversion projects, and Stanford officials have cited solar cell research based on nanoscience, the storage of wind-generated energy, and biofuels as likely areas for research and grants.

“Clean tech has become a magnet for the best and brightest entrepreneurs and executives,” Ehrenpreis says. “Every day we are approached by successful entrepreneurs who were focused on information technology and life sciences who now want to make clean tech the next step in their careers.”

According to Ehrenpreis, major trends are converging to make clean tech the new star of the tech world. For starters, corporations have evolved from paying lip service to “going green” to realizing that clean technologies can contribute significantly to the bottom line. General Electric, Wal-Mart, and Coca-Cola all are making significant investments in clean tech.

Meanwhile, the political landscape has shifted dramatically. “Lawmakers used to be very partisan in their environmental views, and now you have politicians fighting to see who can become the greenest,” says Ehrenpreis. Indeed, this year’s $789 billion national stimulus legislation includes at least $50 billion to support such clean tech initiatives as a smarter electricity grid, renewable energy, and other energy efficient projects.

Ron Pernick, co-founder and managing director of the Clean Edge consulting firm in San Francisco and co-author of the 2007 book, The Clean Tech Revolution, says clean tech already has grown to represent more than 10% of total venture capital activity in Silicon Valley. “It’s on most everyone’s radar screen and is looked at as one of the core areas of venture capital today,” Pernick says. “The credit crunch is having a definite impact, but there is still a general sense of optimism because the drivers behind clean tech, from the cost of fossil fuels to the carbon issue, are not going away just because credit markets are tight.”

According to Pernick, Silicon Valley is a natural place to lead the clean tech revolution. “Many clean technologies are built on applications in the silicon industry,” he says. “And people in Silicon Valley are looking for big challenges and the next great opportunity.”

As an emerging growth industry, clean tech may increasingly find its way into individual investment portfolios. It’s important to remember, however, that risks remain high, shares of public clean tech companies have been volatile, and interest and investment in an industry does not always translate into profits. We’re monitoring progress in this field and would be happy to discuss whether clean tech might have a place in your investment plan.

 


This article was written by a professional financial journalist for Legend Financial Advisors, Inc. and is not intended as legal or investment advice.




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